16 November 2008

Portfolio Changes and an Explanation of My Current Trading Strategy

Another 450-point Dow rollercoaster on Friday offered up another opportunity to convert cash into shares.

Bought UYG at $6.70 near day's end. This purchase upped my cost basis in UYG to $6.45.

During this volatile bear market, my current strategy is to play the market swings by following technicals like overbought/oversold indicators like RSI(2) and Full Stochastics. Also, since I believe we are in a bear market, I will take on larger short positions and hold less cash when the market is up or overbought. Likewise, when the market is down or oversold, I will build long positions but maintain a larger cash position.

My toolkit for trading the market is pretty straightforward and simple. For my trading portfolio, I'm keeping to a small menu of ETFs and generally avoiding shares in individual companies.

For my long positions, I have been looking at the ultra-long 2X-leveraged ETFs in the S&P 500, NASDAQ-100, or Dow, tickers SSO, QLD, or DDM. As you know from reading this blog, I also like trading the ultra-long 2X-leveraged financials ETF as well, ticker UYG.

For my short positions, I use the inverse ultra-short 2X-leveraged ETFs in the S&P 500, NASDAQ-100, or Dow, tickers SDS, QID, or DXD. I also utilize the ultra-short 2X-leveraged financials ETF, ticker SKF, and the ultra-short 2X-leveraged China ETF, ticker FXP.

I like GLD for gold exposure, and may start looking at DIG/DUG for playing the burst bubble of the oil market.

No comments: